Discovery Metals Tests Interest in African Copper

Botswana may be a tiny player in the global copper mining industry, but a long-running – and, at times, bitter – takeover saga involving a small producer and a Chinese private equity firm has highlighted the African country’s export potential.

In the latest twist, Australia-listed Discovery Metals Ltd. put itself up for sale Tuesday after it failed to win the support of Chinese shareholder Cathay Fortune Corp. for a plan to raise up to 250 million Australian dollars (US$245 million) in new debt and equity.

Discovery Metals’s key asset is its wholly owned Boseto project, located in the strategically important Kalahari copper belt of southern Africa. Copper prices have weakened over the past six months, but the metal’s use in everything from high-end electronics to plumbing means it is closely watched by traders as a barometer for the global economy.

Copper’s industrial uses also makes miners of the metal an attractive prospect for China, which accounts for around 40% of global imports.

In an interview with MoneyBeat, Discovery Metals Managing Director Brad Sampson said listed mining companies, trading houses and financial groups had expressed interest in a range of deals that include a possible takeover. It has hired UBS and Credit Suisse to run the sales process, setting a June 10 deadline for binding offers.

“Not all of the parties that we are talking to are talking to us in relation to a change-of-control process,” Mr. Sampson said.

The Perth-based company has so far named only one bidder: Cathay Fortune, which owns 13.7% of its shares.

Discovery Metals said Cathay Fortune has offered at least 170 million Australian dollars (US$167 million), conditional on due diligence. Shanghai-based Cathay Fortune confirmed the bid later Tuesday, but said it “is not bound by any statement in the letter as to price, conditions, timetable or any other matter.”

If Cathay Fortune’s proposal looks generous, given Discovery Metals’s market value of A$97 million and slack demand for commodities globally, then wind the clock back a little more than six months.

In October, Cathay Fortune and partner China-Africa Development Fund made a conditional offer that valued Discovery Metals at A$830 million, only for it to be turned down by the target’s board. Cathay Fortune and CADFund later pitched their offer direct to shareholders in Discovery Metals – in a rare example of a Chinese company turning hostile with a takeover attempt – before abandoning it.

Mr. Sampson said shareholders other than Cathay Fortune have mixed views on whether a takeover is the best outcome. He believed the majority of shareholders would want to retain exposure to copper through a listed company, despite an 85% fall in Discovery Metals’s share price over the past year.